TERRAFORMING TERRA
We discuss and comment on the role agriculture will play in the containment of the CO2 problem and address protocols for terraforming the planet Earth.
A model farm template is imagined as the central methodology. A broad range of timely science news and other topics of interest are commented on.

Wednesday, August 10, 2011

The Market has Spoken

I would like to say something
positive about the present market slump, but this article says it better than
anyone.As I have posted in the past,
just after the 2008 collapse, our problem was to avoid the damage been
inflicted by deflation.So far we have
had three years of outright deflation and this is reflected in insolvent
states, massive unemployment still out of work and no job creation.

Unless the economy is reinflated,
this will drag out for a full decade with untold misery as everyone and
everything readjusts to a new financial regime.

Obama’s personal failure is
monumental.Yet he was a rookie and no
more could be expected.His failure was
to listen to the folks who got us there as did Geo Bush.

The only thing I would add to Ellen’s
analysis here is to insist we must implement a housing disposal program coupled
with a new foreclosure rule as per my prescription of three years ago.Otherwise that part of the economy, and it is
the most necessary part in terms of jobs, will continue to stagnate until all
the related wealth is completely destroyed.

If the government cannot buy, and
the unemployed cannot buy and the military is coming home, were is the
expanding economy?

It used to be that when the Fed Chairman spoke, the market listened;
but the Chairman has lost his mystique. Now when the market speaks,
politicians listen. Hopefully they heard what the market just said:
government cutbacks are bad for business. The government needs to spend
more, not less. Fortunately, there are viable ways to do this while still
balancing the budget.

On Thursday, August 4, the Dow Jones Industrial Average fell 512 points, the
biggest stock market drop since the collapse of September
2008.

Why? Weren’t the markets supposed to rebound after the debt ceiling
agreement was reached on Monday, avoiding U.S.
default and a downgrade of U.S.
debt?

So we were told, but the market apparently understands what politicians don’t:
the debt deal is a death deal for the economy.

Reducing government spending by $2.2 trillion over a decade, as Congress just
agreed to do, will kill any hopes of economic recovery. We’re looking at
a double-dip recession.

The figure is actually more than $2.2 trillion. As Jack
Rasmus pointed out on Truthout on August 4th:

Economists estimate the "multiplier" from government spending
at about 1.5. That means for every $1 cut in government spending, about $1.5
dollars are taken out of the economy. The first year of cuts are therefore $375
billion to $400 billion in terms of their economic effect. Ironically, that's
about equal to the spending increase from Obama's 2009 initial stimulus
package. In other words, we are about to extract from the economy - now showing
multiple signs of weakening badly - the original spending stimulus of 2009!

As others have pointed out, that magnitude of spending contraction will
result in 1.5 million to 2 million more jobs lost. That's also about all the
jobs created since the trough of the recession in June 2009. In other words,
the job market will be thrown back two years as well.

We’re not moving forward. We’re moving backward. The
hand-wringing is all about the “debt crisis,” but the national debt is not what
has stalled the economy, and the crisis was not created by Social Security or
Medicare, which are being set up to take the fall. It was created by Wall
Street, which has squeezed trillions in bailout money from the government and
the taxpayers; and by the military, which has squeezed trillions more for an
amorphous and unending “War on Terror.” But the hits are slated to fall
on the so-called “entitlements” – a social safety net that we the people
are actually entitled to, because we paid for them with
taxes.

The Problem Is Not Debt But a Shrinking Money Supply

The markets are not reacting to a “debt crisis.” They do not look
at charts ten years out. They look at present indicators of jobs and
sales, which have turned persistently negative. Jobs and sales are both
dependent on “demand,” which means getting money into the pockets of consumers;
and the money supply today has shrunk.

We don’t see this shrinkage because it is primarily in the “shadow
banking system,” the thing that collapsed in 2008. The shadow
banking system used to be reflected in M3, but the Fed no longer reports
it. In July 2010, however, the New York Fed posted on its website a staff report titled “Shadow Banking.” It said
that the shadow banking system had shrunk by $5 trillion since its peak in
March 2008, when it was valued at about $20 trillion – actually larger than the
traditional banking system. In July 2010, the shadow system was down to
about $15 trillion, compared to $13 trillion for the traditional banking
system.

Only about $2 trillion of this shrinkage has been replaced with the
Fed’s quantitative easing programs, leaving a $3 trillion hole to be
filled; and only the government is in a position to fill it. We have
been sold the idea that there is a “debt crisis” when there is really a
liquidity crisis. Paying down the federal debt when money is already
scarce just makes matters worse. Historically, when the deficit has been reduced, the money
supply has been reduced along with it, throwing the economy into recession.

Most of our money now comes into the world as debt, which is created on the books of banks
and lent into the economy. If there were no debt, there would be no
money to run the economy; and today, private debt has collapsed.
Encouraged by Fed policy, banks have tightened up lending and are sitting on
their money, shrinking the circulating money supply and the economy.

Creative Ways to Balance the Budget

The federal debt has not been paid off since the days of Andrew
Jackson, and it does not need to be paid off. It is just rolled over from year
to year. The only real danger posed by a growing federal debt is the interest
burden, but that has not been a problem yet. The Congressional Budget
Office reported in December 2010:

[A] sharp drop in interest rates has held down the amount of
interest that the government pays on [the national] debt. In 2010, net interest
outlays totaled $197 billion, or 1.4 percent of GDP--a smaller share of GDP
than they accounted for during most of the past decade.

The interest burden will increase if the federal debt continues to
grow, but that problem can be solved by mandating the Federal Reserve to buy
the government’s debt. The Fed rebates its profits to the government after deducting
its costs, making the money nearly interest-free. The Fed is already
doing this with its quantitative easing programs and now holds nearly $1.7
trillion in federal securities.

If Congress must maintain its debt ceiling, there are other ways to
balance the budget and avoid a growing debt. Ron Paul has brought a creative bill that would
eliminate the $1.7 trillion deficit simply by having the Fed tear up
its federal securities. No creditors would be harmed, since the
money was generated with a computer keystroke in the first place. The
government would just be canceling a debt to itself and saving the interest.

The Trillion Dollar Coin Alternative

The most direct solution to the debt problem is for the government to
fund its budget with government-issued money. One alternative would be
for the Treasury to issue U.S.
Notes, as was done in the Civil War by President Lincoln.

Another alternative was suggested in my book Web of Debt in 2007: the government could simply mint
some trillion dollar coins. Congress has the Constitutional power to “coin
money,” and no limit is put on the value of the coins it creates, as was
pointed out by a chairman of the House Coinage Subcommittee in the
1980s.

The idea just started to get serious traction the last few days as the
debt stalemate has grown more intense and partisan. Yale constitutional law
professor Jack Balkin floated it as an option in a CNN op-ed yesterday (July
28th).

Today the idea has gone mainstream. It is covered by NY Magazine, CNBC, and The Economist. Even Nobel economist Paul Krugman of the NY Times has weighed in. Annie
Lowrey of Slate discusses it as one of several gimmicks the
government could use to resolve the debt-ceiling debacle. Krugman
added:

These things [like coin seigniorage] sound ridiculous — but so is the
behavior of Congressional Republicans. So why not fight back using legal
tricks?

The debt ceiling itself was a legal trick, a form of extortion based on
a century-old statute that conflicts with the Constitution. However, said the
Johnsville News article, “coin seigniorage is not a scam. It is legal . . . .
This plan looks like it might be Obama's ace in the hole . . . .”

The article cites Warren Mosler, founder of MMT (Modern Monetary
Theory), who reviewed the idea in a January 20th blog post and
concluded it would work operationally.

Scott Fullwiler, associate professor of economics at Wartburg College,
also did a comprehensive analysis and concluded that the trillion
dollar coin alternative was unlikely to result in inflation. Comparing it
to Ron Paul’s plan, he wrote:

This option is much like Ron Paul’s proposal—actually identical in
terms of the effect on the debt ceiling and the Treasury—except that his
proposal would destroy all of the Fed’s capital (and then some), which is a
potential problem politically . . . though not operationally, and which the Fed
is therefore very unlikely to agree to.

Scott Fullwiler, associate professor of economics at Wartburg College,
also did a comprehensive analysis and concluded the trillion
dollar coin alternative was unlikely to be inflationary. Comparing
it to Ron Paul’s plan, he wrote:

This option is much like Ron Paul’s proposal—actually identical in
terms of the effect on the debt ceiling and the Treasury—except that his
proposal would destroy all of the Fed’s capital (and then some), which is a
potential problem politically . . . though not operationally, and which the Fed
is therefore very unlikely to agree to.

On the inflation question, just because the Treasury has money in its
account doesn't mean it can spend the funds. It needs the usual
Congressional approval. To keep a lid on spending, Congress just needs to
be instructed in basic economics. They can spend on goods and services
up to full employment without creating price inflation (since supply and demand
will rise together). After that, they need to tax -- not to fund the
budget, but to pull excess money back in and avoid driving up prices.

Spending More While Borrowing Less

In an economic downturn, the government needs to spend more, not less,
as history shows. This can be done while still balancing the budget,
simply by taking back the government’s Constitutional power to issue
money.

The budget crisis is an artificial one, and the current “solution” will
only guarantee a deeper recession and more widespread suffering. Rather
than obsessing over deficits and debt, the government needs to turn its focus
to jobs, sales and quality of life.

Ellen Brown is president of the Public Banking Institute and the
author of eleven books. She developed her research skills as an attorney
practicing civil litigation in Los
Angeles. In Web of Debt, she turns those skills
to an analysis of the Federal Reserve and “the money trust.” Her websites
are

No comments:

About Me

Apr 2017 - 4.1 Mil Pg Views, March 2013 - Posted my paper introducing CLOUD COSMOLOGY & NEUTRAL NEUTRINO rigorously described as the SPACE TIME PENDULUM, September 2010 I am pleased to report that my essay titled A NEW METRIC WITH APPLICATIONS TO PHYSICS AND SOLVING CERTAIN HIGHER ORDERED DIFFERENTIAL EQUATIONS' has been published in Physics Essays(AIP) and appeared in their June 2010 quarterly. 40 years ago I took an honors degree in applied mathematics from the University of Waterloo. My interest was Relativity and my last year there saw me complete a 900 level course under Hanno Rund on his work in relativity,as well as differential geometry(pure math) and of course analysis. I continued researching new ideas and knowledge since that time and I have prepared a book for publication titled Paradigms Shift&. I maintain my blog as a day book and research tool to retain data and record impressions and interpretations on material read. Do join my blog and receive Four items of interest daily Monday through Saturday.